10-Q 1 abmd-10q_20170930.htm Q1F18 10-Q abmd-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number 001-09585

 

ABIOMED, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

04-2743260

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

22 CHERRY HILL DRIVE

DANVERS, MASSACHUSETTS 01923

(Address of principal executive offices, including zip code)

(978) 646-1400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 27, 2017, 44,216,145 shares of the registrant’s common stock, $.01 par value, were outstanding.

 

 

 


 

ABIOMED, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

Page

PART I - FINANCIAL INFORMATION:

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and March 31, 2017

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2017 and 2016

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2017 and 2016

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2017 and 2016

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 

 

 

 

Item 5.

Other Information

 

31

 

 

 

 

Item 6.

Exhibits

 

32

 

 

 

 

SIGNATURES

 

33

 

 

NOTE REGARDING COMPANY REFERENCES

Throughout this report on Form 10-Q (the “Report”), “Abiomed, Inc.,” the “Company,” “we,” “us” and “our” refer to ABIOMED, Inc. and its consolidated subsidiaries.

 

NOTE REGARDING TRADEMARKS

ABIOMED, IMPELLA, IMPELLA 2.5, IMPELLA 5.0, IMPELLA LD, IMPELLA CP and IMPELLA RP are trademarks of ABIOMED, Inc., and are registered in the U.S. and certain foreign countries. AB5000 and cVAD REGISTRY are trademarks of ABIOMED, Inc. 

2


 

PART 1. FINANCIAL INFORMATION

ITEM 1:

FINANCIAL STATEMENTS

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

 

 

September 30, 2017

 

 

March 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,536

 

 

$

39,040

 

Short-term marketable securities

 

 

218,661

 

 

 

190,908

 

Accounts receivable, net

 

 

57,327

 

 

 

54,055

 

Inventories

 

 

40,632

 

 

 

34,931

 

Prepaid expenses and other current assets

 

 

9,014

 

 

 

8,024

 

Total current assets

 

 

370,170

 

 

 

326,958

 

Long-term marketable securities

 

 

55,954

 

 

 

47,143

 

Property and equipment, net

 

 

97,697

 

 

 

87,777

 

Goodwill

 

 

34,332

 

 

 

31,045

 

In-process research and development

 

 

16,016

 

 

 

14,482

 

Long-term deferred tax assets, net

 

 

106,798

 

 

 

34,723

 

Other assets

 

 

13,686

 

 

 

8,286

 

Total assets

 

$

694,653

 

 

$

550,414

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,667

 

 

$

20,620

 

Accrued expenses

 

 

35,256

 

 

 

37,703

 

Deferred revenue

 

 

10,584

 

 

 

10,495

 

Current portion of capital lease obligation

 

 

851

 

 

 

799

 

Total current liabilities

 

 

63,358

 

 

 

69,617

 

Other long-term liabilities

 

 

598

 

 

 

3,251

 

Contingent consideration

 

 

9,835

 

 

 

9,153

 

Long-term deferred tax liabilities

 

 

866

 

 

 

783

 

Capital lease obligation, net of current portion

 

 

15,110

 

 

 

15,539

 

Total liabilities

 

 

89,767

 

 

 

98,343

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class B Preferred Stock, $.01 par value

 

 

 

 

 

 

Authorized - 1,000,000 shares; Issued and outstanding - none

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

 

442

 

 

 

437

 

Authorized - 100,000,000 shares; Issued - 45,921,029 shares at September 30, 2017 and 45,249,281 shares at March 31, 2017

 

 

 

 

 

 

 

 

Outstanding - 44,200,784 shares at September 30, 2017 and 43,673,286 shares

at March 31, 2017

 

 

 

 

 

 

 

 

Additional paid in capital

 

 

592,081

 

 

 

565,962

 

Retained earnings (accumulated deficit)

 

 

90,164

 

 

 

(46,959

)

Treasury stock at cost - 1,720,245 shares at September 30, 2017 and 1,575,995 shares at March 31, 2017

 

 

(65,999

)

 

 

(46,763

)

Accumulated other comprehensive loss

 

 

(11,802

)

 

 

(20,606

)

Total stockholders' equity

 

 

604,886

 

 

 

452,071

 

Total liabilities and stockholders' equity

 

$

694,653

 

 

$

550,414

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

3


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

 

132,782

 

 

$

 

102,928

 

 

$

 

265,213

 

 

$

 

205,917

 

Funded research and development

 

 

 

41

 

 

 

 

27

 

 

 

 

78

 

 

 

 

33

 

 

 

 

 

132,823

 

 

 

 

102,955

 

 

 

 

265,291

 

 

 

 

205,950

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

 

21,627

 

 

 

 

17,309

 

 

 

 

43,489

 

 

 

 

32,379

 

Research and development

 

 

 

19,390

 

 

 

 

18,052

 

 

 

 

36,321

 

 

 

 

33,712

 

Selling, general and administrative

 

 

 

60,080

 

 

 

 

53,086

 

 

 

 

120,677

 

 

 

 

104,118

 

 

 

 

 

101,097

 

 

 

 

88,447

 

 

 

 

200,487

 

 

 

 

170,209

 

Income from operations

 

 

 

31,726

 

 

 

 

14,508

 

 

 

 

64,804

 

 

 

 

35,741

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

 

781

 

 

 

 

342

 

 

 

 

1,416

 

 

 

 

611

 

Other (expense) income, net

 

 

 

(23

)

 

 

 

(114

)

 

 

 

56

 

 

 

 

(191

)

 

 

 

 

758

 

 

 

 

228

 

 

 

 

1,472

 

 

 

 

420

 

Income before income taxes

 

 

 

32,484

 

 

 

 

14,736

 

 

 

 

66,276

 

 

 

 

36,161

 

Income tax provision

 

 

 

7,981

 

 

 

 

5,861

 

 

 

 

4,399

 

 

 

 

14,376

 

Net income

 

$

 

24,503

 

 

$

 

8,875

 

 

$

 

61,877

 

 

$

 

21,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

 

0.56

 

 

$

 

0.21

 

 

$

 

1.41

 

 

$

 

0.51

 

Basic weighted average shares outstanding

 

 

 

44,141

 

 

 

 

43,129

 

 

 

 

44,018

 

 

 

 

42,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

 

0.54

 

 

$

 

0.20

 

 

$

 

1.36

 

 

$

 

0.49

 

Diluted weighted average shares outstanding

 

 

 

45,698

 

 

 

 

44,580

 

 

 

 

45,655

 

 

 

 

44,493

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

4


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

24,503

 

 

$

8,875

 

 

$

61,877

 

 

$

21,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gains (losses)

 

 

2,696

 

 

 

812

 

 

 

8,849

 

 

 

(887

)

Net unrealized gains (losses) on marketable securities

 

 

10

 

 

 

(18

)

 

 

(45

)

 

 

132

 

Other comprehensive gain (loss)

 

 

2,706

 

 

 

794

 

 

 

8,804

 

 

 

(755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

27,209

 

 

$

9,669

 

 

$

70,681

 

 

$

21,030

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

5


 

ABIOMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

For the Six Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

61,877

 

 

$

21,785

 

Adjustments required to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

5,320

 

 

 

2,958

 

Bad debt expense

 

 

(54

)

 

 

(13

)

Stock-based compensation

 

 

17,938

 

 

 

18,047

 

Write-down of inventory and other assets

 

 

2,528

 

 

 

1,354

 

Excess tax benefit from stock-based awards

 

 

 

 

 

(3,631

)

Deferred tax provision

 

 

3,073

 

 

 

9,777

 

Change in fair value of contingent consideration

 

 

682

 

 

 

186

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,824

)

 

 

(3,807

)

Inventories

 

 

(5,363

)

 

 

(6,284

)

Prepaid expenses and other assets

 

 

(869

)

 

 

(2,029

)

Accounts payable

 

 

299

 

 

 

1,906

 

Accrued expenses and other liabilities

 

 

(3,174

)

 

 

3,157

 

Deferred revenue

 

 

18

 

 

 

330

 

Net cash provided by operating activities

 

 

79,451

 

 

 

43,736

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(131,934

)

 

 

(134,235

)

Proceeds from the sale and maturity of marketable securities

 

 

95,416

 

 

 

116,685

 

Purchase of other investment

 

 

(6,400

)

 

 

 

Purchases of property and equipment

 

 

(17,675

)

 

 

(10,453

)

Net cash used for investing activities

 

 

(60,593

)

 

 

(28,003

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

5,257

 

 

 

5,764

 

Excess tax benefit from stock-based awards

 

 

 

 

 

3,631

 

Taxes paid related to net share settlement of vesting of stock awards

 

 

(19,237

)

 

 

(19,608

)

Proceeds from the issuance of stock under employee stock purchase plan

 

 

1,063

 

 

 

769

 

Principal payments on capital lease obligation

 

 

(377

)

 

 

(83

)

Net cash used for financing activities

 

 

(13,294

)

 

 

(9,527

)

Effect of exchange rate changes on cash

 

 

(68

)

 

 

272

 

Net increase in cash and cash equivalents

 

 

5,496

 

 

 

6,478

 

Cash and cash equivalents at beginning of period

 

 

39,040

 

 

 

48,231

 

Cash and cash equivalents at end of period

 

$

44,536

 

 

$

54,709

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

584

 

 

$

560

 

Cash paid for interest on capital lease obligation

 

 

259

 

 

 

89

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment under capital lease obligation

 

 

 

 

 

16,784

 

Property and equipment in accounts payable and accrued expenses

 

 

897

 

 

 

3,810

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited)

 

 

6


 

ABIOMED, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except share data)

 

 

Note 1. Nature of Business

Abiomed, Inc. (the “Company” or “Abiomed”) is a provider of mechanical circulatory support devices and offers a continuum of care to heart failure patients. The Company develops, manufactures and markets proprietary products that are designed to enable the heart to rest, heal and recover by improving blood flow and/or performing the pumping function of the heart. The Company’s products are used in the cardiac catheterization lab, or cath lab, by interventional cardiologists and in the heart surgery suite by heart surgeons for patients who are in need of hemodynamic support prophylactically or emergently before, during or after angioplasty or heart surgery procedures.

 

Note 2. Basis of Preparation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial reporting and in accordance with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 that has been filed with the Securities and Exchange Commission (the “SEC”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments that are necessary for a fair presentation of results for the interim periods presented. The results of operations for any interim period may not be indicative of results for the full fiscal year or any other subsequent period.

There have been no changes in the Company’s significant accounting policies for the three and six months ended September 30, 2017 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 that has been filed with the SEC.

New Accounting Pronouncements Adopted

Effective April 1, 2017, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, recognition of stock compensation award forfeitures, classification of awards as either equity or liabilities, the calculation of diluted shares outstanding and classification on the statement of cash flows.

 

7


 

The following table summarizes the most significant impacts of ASU 2016-09 for the three and six months ended September 30, 2017:

 

Description of Change:

 

Impact of Change Upon Adoption on April 1, 2017 and for the

Three and Six Months Ended September 30, 2017:

 

Adoption Method:

The new standard eliminates the requirement that excess tax benefits be realized through a reduction in income taxes payable before a company can recognize them in the statement of operations.

 

As a result, on April 1, 2017, the Company recorded a cumulative-effect adjustment to increase retained earnings and deferred tax assets by $76.4 million for excess tax benefits not previously recognized.

 

Modified-retrospective (required)

 

 

 

 

 

Excess tax benefits related to restricted stock unit vestings or stock option exercises are recorded through the statement of operations.

 

The income tax benefit for the three and six months ended September 30, 2017, included excess tax benefits of $4.5 million and $21.3 million, respectively. These recognized excess tax benefits resulted from restricted stock units that vested or stock options that were exercised during the three and six months ended September 30, 2017.

 

Prospective (required)

 

 

 

 

 

Excess tax benefits related to restricted stock unit vestings or stock option exercises are classified as operating cash flows instead of financing cash flows.

 

Increase in cash flow from operating activities and decrease in cash flow from financing activities by approximately $21.3 million for the six months ended September 30, 2017. The statement of cash flows for the prior period has not been adjusted.

 

Prospective (elected)

 

 

 

 

 

Calculation of diluted weighted average shares outstanding under the treasury method no longer assume that tax benefits related to stock-based awards are used to repurchase common stock.

 

The Company excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis as required by  ASU 2016-09.

 

Prospective (required)

 

 

 

 

 

An accounting policy election can be made to reduce stock-based compensation expense for forfeitures as they occur instead of estimating forfeitures that are expected to occur.

 

The Company made an accounting policy election to account for forfeitures as they occur with the change applied on a modified retrospective basis with a cumulative effect adjustment on April 1, 2017 to increase additional paid-in capital by $1.8 million, increase deferred tax assets by $0.7 million and decrease retained earnings by $1.1 million. The Company elected to make this accounting policy change to simplify the accounting for stock-based compensation and believes this method provides a more accurate reflection of periodic stock based compensation cost. Prior to the adoption of this accounting standard, the Company estimated at grant the likelihood that the award would ultimately vest, and revised the estimate, if necessary, in future periods if the actual forfeiture rate differed.

 

Modified-retrospective (elected)

 

 

 

 

 

Cash payments to tax authorities for shares withheld to meet employee tax withholding requirements on restricted stock units are classified as financing cash flow instead of operating cash flow.

 

 

 

No change since the Company has historically presented these amounts as a financing activity. Prior to ASU 2016-09, U.S. GAAP has not specified how these types of transactions should be classified in the statement of cash flows.

 

N/A

 

See table below for the changes in beginning stockholders' equity as a result of this implementation.

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

Par value

 

 

Number of shares

 

 

Amount

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2017

 

 

43,673,286

 

$

 

437

 

 

 

1,575,995

 

$

 

(46,763

)

$

 

565,962

 

$

 

(46,959

)

$

 

(20,606

)

$

 

452,071

 

Cumulative effect of adoption of new accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,835

 

 

 

75,246

 

 

 

 

 

 

 

77,081

 

Balance, April 1, 2017

 

 

43,673,286

 

$

 

437

 

 

 

1,575,995

 

$

 

(46,763

)

$

 

567,797

 

$

 

28,287

 

$

 

(20,606

)

$

 

529,152

 

 

8


 

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers to provide updated guidance on revenue recognition. This new standard will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to use more judgment and make more estimates than under the current accounting guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company is assessing all of the potential impacts of the revenue recognition guidance. Although the Company has not yet completed its assessment of the new revenue recognition guidance, the Company believes that the new revenue recognition guidance generally supports the recognition of revenue at a point-in-time for product sales and over an extended period of time for preventative maintenance service agreements, which is consistent with its current revenue recognition model. The Company does anticipate that the new revenue standard will result in expanded financial statement disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company is reviewing its internal controls and processes over revenue recognition in order to prepare for the adoption of and ongoing accounting under the new standard. As the Company completes its evaluation of this new accounting standard, new information may arise that could change the Company’s current understanding of the impact to revenue and expense recognized and financial statement disclosures. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust the Company’s assessment and implementation plans accordingly, if required. ASU 2014-09 will become effective for the Company beginning in fiscal 2019.

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.  This guidance changes accounting for financial assets and financial liabilities under the fair value option and includes additional presentation and disclosure requirements for financial instruments. ASU 2016-01 requires financial assets to be measured at fair value with changes in fair value recognized in the statement of operations. The ASU eliminates the available-for-sale classification for marketable securities in which changes in fair value are currently recorded as a component of other comprehensive income. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted with specific application guidance. The Company is currently in the process determining the impact of the ASU 2016-01 amendment on its consolidated financial statements. ASU 2016-01 will become effective for the Company beginning in fiscal 2019.

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company is currently in the process of evaluating its lessee arrangements to determine the impact of ASU 2016-02 amendment on its consolidated financial statements. This evaluation includes a review of the Company’s existing leasing arrangements on its facilities. ASU 2016-02 will become effective for the Company beginning in fiscal 2020.

 

 

9


 

Note 3. Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of dilutive common shares outstanding during the period. Diluted shares outstanding are calculated by adding to the weighted average shares outstanding any potential dilutive securities outstanding for the period. Potential dilutive securities include stock options, restricted stock units, performance-based stock awards and shares to be purchased under the Company’s employee stock purchase plan. The Company’s basic and diluted net income per share for the three and six months ended September 30, 2017 and 2016 were as follows (in thousands, except per share data):

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic Net Income Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

24,503

 

 

$

 

8,875

 

 

$

 

61,877

 

 

$

 

21,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

44,141

 

 

 

 

43,129

 

 

 

 

44,018

 

 

 

 

42,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

$

 

0.56

 

 

$

 

0.21

 

 

$

 

1.41

 

 

$

 

0.51

 

 

 

For the Three Months Ended September 30,

 

 

For the Six Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Diluted Net Income Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

24,503

 

 

$

 

8,875

 

 

$

 

61,877

 

 

$

 

21,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing basic net

   income per share

 

 

44,141

 

 

 

 

43,129

 

 

 

 

44,018

 

 

 

 

42,971

 

Effect of dilutive securities

 

 

1,557

 

 

 

 

1,451

 

 

 

 

1,637

 

 

 

 

1,522

 

Weighted average shares used in computing diluted

   net income per share

 

 

45,698

 

 

 

 

44,580

 

 

 

 

45,655

 

 

 

 

44,493

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted

$

 

0.54

 

 

$

 

0.20

 

 

$

 

1.36

 

 

$

 

0.49

 

 

For the three and six months ended September 30, 2017, approximately 200 and 5,700 shares underlying out-of-the-money stock options, respectively, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 77,000 restricted shares in each of the three and six months ended September 30, 2017, respectively, related to performance-based awards for which milestones have not been met, were not included in the computation of diluted earnings per share.

For the three and six months ended September 30, 2016, approximately 1,500 and 8,800 shares underlying out-of-the-money stock options, respectively, were excluded in the computation of diluted earnings per share because their effect would have been anti-dilutive. Also, approximately 186,000 restricted shares in each of the three and six months ended September 30, 2016, related to performance-based awards for which milestones had not been met at that date were not included in the computation of diluted earnings per share.

 

 

Note 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The Company’s marketable securities are classified as available-for-sale securities and, accordingly, are recorded at fair value. The difference between amortized cost and fair value is included in stockholders’ equity.

The Company’s marketable securities at September 30, 2017 and March 31, 2017 are invested in the following:

10


 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

36,178

 

 

$

 

 

$

(9

)

 

$

36,169

 

Short-term government-backed securities

 

 

124,654

 

 

 

 

 

 

(87

)

 

 

124,567

 

Short-term corporate debt securities

 

 

57,955

 

 

 

2

 

 

 

(32

)

 

 

57,925

 

Long-term government-backed securities

 

 

48,186

 

 

 

 

 

 

(61

)

 

 

48,125

 

Long-term corporate debt securities

 

 

7,835

 

 

 

 

 

 

(6

)

 

 

7,829

 

 

 

$

274,808

 

 

$

2

 

 

$

(195

)

 

$

274,615

 

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Fair Market

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(in $000's)

 

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities

 

$

45,199

 

 

$

 

 

$

(13

)

 

$

45,186

 

Short-term government-backed securities

 

 

90,199

 

 

 

1

 

 

 

(87

)

 

 

90,113

 

Short-term corporate debt securities

 

 

55,465

 

 

 

 

 

 

(31

)

 

 

55,434

 

Long-term U.S. Treasury mutual fund securities

 

 

1,998

 

 

 

 

 

 

(3

)

 

 

1,995

 

Long-term government-backed securities

 

 

43,484

 

 

 

5

 

 

 

(18

)

 

 

43,471

 

Long-term corporate debt securities

 

 

1,853

 

 

 

 

 

 

(1

)

 

 

1,852

 

 

 

$

238,198

 

 

$

6

 

 

$

(153

)

 

$

238,051

 

 

Fair Value Hierarchy

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Level 1 primarily consists of financial instruments whose values are based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 is comprised of unobservable inputs that are supported by little or no market activity. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flows, or similar techniques, and at least one significant model assumption or input is unobservable.

11


 

The following table presents the Company’s financial instruments recorded at fair value in the condensed consolidated balance sheets, classified according to the three categories described above:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2017:

 

(in $000's)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term U.S. Treasury mutual fund securities